HUNDREDS of thousands of Brits with small pension pots will no longer lose retirement cash through charges from next year under new rules.
Pension pots with only small amounts saved can be eaten up by fees, reducing their value to nothing in the worst case.
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Now the government has confirmed it will introduce new rules that mean there will be no flat fees on pots valued at £100 or less.
Due to be introduced from next April, the fee ban will apply to certain workplace pensions.
Guy Opperman, minister for pensions, said that removing flat fees will “provide a boost to hundreds of thousands of people and help them enjoy the retirement they deserve”.
It’s estimated that Brits will have around seven different jobs in their working life, on average.
And more than 10million Brits are now enrolled in a pension automatically through work.
That means many of us now have several small pensions from different jobs.
Small pots where money is no longer being saved can be wiped out by even small flat-rate charges over time.
Bhumika Meyangbo, 32, previously told The Sun she was “shocked”to learn that one of her pension pots worth around £100 was being stung with a £18 charge every year.
Becky O’Connor, head of pensions and savings at interactive investor, said: “Preserving small pots against erosion below £100 from flat fees will prevent the disappointment of a workplace pension falling in value to £0.”
The new rules will apply to defined contribution pension with combination charges which workers are auto-enrolled in when they are worth £100 or less.
Pension providers are currently allowed to charge a flat fee regardless of how much is saved.
The average fees charged by providers range from £13 to £20 per year, according to government figures.
Charges will still apply but they will be much cheaper. A fee that’s a percentage of the pension pot can be charged annually but this is capped at 0.75%.
But the government stopped short of shaking up pension charges further that would have made it simpler to compare the charges between different providers.
Even with the ban, small pension pots worth more than £100 could still be eroded down to that amount which is not enough for retirement, O’Connor added.
While the ban offers some protection, Brits with a number of small pensions could still save more cash by bringing them altogether.
“Anyone worried about small pension pots being eroded by charges who has a number of them from old jobs could consider bringing them together in one place,” she said.
“This also has the advantage of making it less likely that you will forget about old, low value pensions from the past and therefore less likely that any will be eroded to such low levels.”
How to avoid big fees on small pension pots
Every little counts, so keeping on top of multiple small pensions can pay off over time.
If you’ve got lots of small workplace pots that you’re no longer paying into, you might be better off consolidating them into one larger pension.
You’ll have all your pensions in one place so it’s easier to keep track, and only one set of fees.
You can choose which pension provider you want to transfer them too and pick the best one for you.
You’ll need to look at fees and charges, but also might want to consider the investment options available.
If any of your pots are over £30,000 you’ll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to a financial advisor.
Anyone with a defined benefit pension should be wary about transferring, as they come with extra benefits they could lose out on if you switch.
Defined benefit – also known as final salary – pension schemes give their members an income for life.
The amount you get is based on how much you earn, either looking at your salary when you retire or an average over your career.
These gold-plated pensions are rare now as most companies have stopped offering them to new staff.
Mostly, they have been replaced with something called defined contribution pensions.
This is where you save a certain amount of money each month and it is invested in the stock market.
The government tops up the money through tax relief, and most savers get a contribution from their employer too.
But the final amount of money you end up with depends on how much you have saved and how well your investments have performed.
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This post first appeared on thesun.co.uk
